Member of the European Commission, responsible for Internal Market and Services

State of the (Banking) Union

Frankfurt Finance Summit

Frankfurt, 20 May 2014

Vielen Dank Dr Schäfer,

And my thanks also to Dr Lutz Raettig and Hubertus Väth of Frankfurt Main Finance for inviting me to speak at this conference.

As this event proves, this city has grown into a major financial centre. For Germany and its economy, but also for the Single Market and the rest of the world.

Frankfurt attracts people and business – not only bankers!

This is my second visit to Frankfurt in less than a month's time.

And many people have applied to work with Danièle Nouy at the new Single Supervisor here in Frankfurt!

Ladies and gentlemen,

Citizens across Europe are called to vote later this week in the elections to the European Parliament. And I hope they will go to vote given the importance and role of Members of the European Parliament.

These elections take place at a turning point for Europe.

We have lived through six years of financial crisis; and three years of sovereign debt crisis.

The economic outlook is improving, but the social consequences of the crises are still felt across Europe.

Compared to 2007, unemployment in absolute numbers has increased by 9.3 million individuals! Many are 25 years old or younger.

SMEs, in particular in Southern Europe, have difficulties obtaining the credit they need for their business. Many companies have failed.

This week's elections are not primarily about Brussels or institutional powers.

It's about the EU's added value.

It's about people, growth and jobs.

Many citizens are asking: Why does Europe matter? How does Europe help us?

One important part of the answer is the fundamental reform of the financial sector which Europe has carried out over the past years.

Europe has implemented the G20 agenda so that every market, every player and every activity is regulated and effectively supervised

We have created new supervisory authorities to supervise banks, markets and insurance companies in a consistent way.

EIOPA, the insurance authority, is located here in Frankfurt. Adam Farkas from the European Banking Authority in London, will speak at this conference later today.

And let me be clear: These fundamental reforms would not have been possible without joint action by the EU and its Member States.

Europe's financial markets are too interlinked to be dealt with nationally.

Many European financial institutions are major players - not only in the Single Market - but also on the global arena. Deutsche Bank, Deutsche Börse, Allianz just to mention a few German examples.

So we need common rules and regulatory convergence, we need the EU.

The past years have also brought to light how close Member States and their banking sectors are tied together by the Euro. We have finally realised that a joint currency is not sustainable without joint bank supervision and resolution and also integrated capital markets. On this point we are not at the end of the road.

Our response has been decisive.

Together, we have turned the idea of a banking union into reality in less than two years.

Ladies and Gentlemen,

The Banking Union is probably our biggest project since the euro itself. The Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) will ensure a truly European system.

At the same time, the system is proportionate.

It was never the intention that the SSM should carry out the day-to-day supervision of small, local institutions.

But as we learned during the crisis, problems in small banks can create big problems.

If this happens, the SSM will intervene. This is essential for financial stability.

The practical preparations for the SSM are moving at light speed. I am sure that Danièle Nouy will go into this in more detail.

The second pillar of the Banking Union, the SRM, will be fully operational in 2016.

It will ensure that bank failures are dealt with jointly and quickly. Over a weekend, if necessary.

The SRM will apply the Bank Recovery and Resolution Directive (the BRRD) – the new Single Market framework to treat failing banks.

The rules are very clear: If things go wrong, the banks' shareholders and creditors have to pay first.

As a general rule, shareholders and creditors must take losses amounting to 8% of the bank's total liabilities, before the single resolution fund, pre-financed by the banking sector, can be used.

This 8%-rule is stricter than the system already in place here in Germany.

In fact, the new EU rules are one of the world's toughest in terms of imposing losses on banks' shareholders and creditors.

It guarantees that tax-payers are no longer in the front-line to save failing banks.

So this is not business as usual, this is a new world of dealing with failing banks.

Some say that the fund is too small.

I think that is a misunderstanding. Of course, the SRM needs access to funding, backed by temporary bridge financing.

But if the new BRRD-rules would have been in place during the crisis, the fund would have been used only once during the whole crisis to recapitalise a bank!

And I want to make one last point in this context:

We are not setting up a bail-out fund. The SRM is not a matter of tax-payers from one country being called on to save banks in other countries.

At the heart of the SRM, a strong and efficient Single Resolution Board will be the guarantor that the new rules are applied.

National authorities remain responsible for resolution decisions for less significant domestic banks, subject to European oversight.

We have also been careful to take into account the specificities of business models such as savings banks or cooperatives.

And I will continue to take into account these specificities over the coming months to determine in detail which bank pays what into the Single Resolution Fund, based on size and risk profile.

I am aware that this is a matter of concern to the German Bundestag – represented today on the Panel by Gerhard Schick - and other national parliaments, who will examine the inter-governmental agreement that supports the SRM, in the coming months..

I want to assure you that we are coordinating this important work very closely with stakeholders, Member States, and the European Parliament – Wolf Klinz is on the panel today.

Ladies and Gentlemen,

The reforms mentioned have been essential to build confidence and stability in the financial markets.

And to ensure that funding flows to the real economy.

Looking at this from the European perspective, we have to address the uneven recovery in Europe. This year, Poland's economy is set to grow by 3.2%, while the figure for Italy is 0.6%.

And almost 5.5 million young people – almost one in every four young adults in Europe – are unemployed.

Germany has a lot to contribute in this context: Your vocational training system has a proven track-record. The German Mittelstand is world-leading in many areas.

German best practices can be a source of inspiration for other EU countries.

And benefits will be mutual: A strong European Union is good for Germany.

Recovered demand in other EU countries means opportunities for German business.

Some of the challenges we will face in the coming years are national and are best dealt with at national level.

But many issues affect us all: the security at the EU borders, the demographic challenge, the energy dependence, immigration policies, climate change.

We need to face these issues together rather than everybody on their own.

We need to renew the EU's industrial base, reduce our energy dependence, use the full potential of the Single Market, invest in education and key technologies. This must be the key priority for the new Commission in the coming years.

The financial markets, here in Frankfurt and elsewhere, need to be part of the solution.

This is why we launched, last year, work on long-term financing and investment. Followed-up by a Communication in March this year.

And contrasting to what was claimed in the press last week, this Communication did not propose a new EU savings product to the detriment of national, existing products. What we are thinking about is to look into ways in which the potential of private savings could be used in a more efficient way to promote innovation and SMEs. But nothing has been decided yet.

Many of the institutions represented here today have been very active in the debate on long-term financing. I would encourage you to continue your engagement.

This is a work-stream that will remain crucially important for the foreseeable future.